UNIT-3

FACTORIES ACT,1948
What is a factory?

A premises whereon 10 or more persons are engaged if power is

used, or 20 or more persons are engaged if power is not used, in a
manufacturing process. [section 2(m)].
Objective of the Act

 The Act has been enacted primarily with the object of protecting workers
employed in factories against industrial and occupational hazards.
 For that purpose, it seeks to impose upon the owner or the occupier certain
obligations to protect the workers and to secure for them employment in
conditions conductive to their health and safety.
Applicability of the Act

At any place wherein manufacturing process is carried on with or without the aid
of power or is so ordinarily carried on, not with standing that:
 The number of persons employed therein is less than ten, if working with the
aid of power and less than twenty if working without the aid of power, or
 The persons working therein are not employed by the owner thereof but are
working with the permission of, or under agreement with, such owner.
What is a manufacturing process?
Manufacturing process means any process for-
 (i) making, altering, repairing, ornamenting, finishing, packing, oiling, washing,
cleaning, breaking up, demolishing, or otherwise treating or adapting any article
or substance with a view to its use, sale, transport, delivery or disposal; or
 (ii) pumping oil, water, sewage or any other substance; or
 (iii) generating, transforming or transmitting power; or
 (iv) composing types for printing, printing by letter press, lithography,
photogravure or other similar process or book binding
 (v) constructing, reconstructing, repairing, refitting, finishing or breaking up
ships or vessels;
 (vi) preserving or storing any article in cold storage. • [section 2(k)].
Who is a worker?

 A person employed in any manufacturing process or cleaning or

any work incidental to manufacturing process.
 A person employed, directly or by or through any agency with or
without knowledge of the principal employer.
 Whether for remuneration or not.
 Relationship of master & servant [section 2(l)].
Definitions[Sec.2]

 “Adult” means a person who has completed his eighteenth year

of age
 “Adolescent” means a person who has completed his fifteenth
year of age but has not completed his eighteenth year
 “Child” means a person who has not completed his fifteenth year
of age
 “Young person” means a person who is either a child or an
adolescent
Definitions[Sec.2]

 “Day” means a period of twenty-four hours beginning at midnight;

 "week" means a period of seven days beginning at midnight on Saturday night
 “Calendar year” means the period of twelve months beginning with the first
day of January in any year
 “Power” means electrical energy, or any other form of energy which is
mechanically transmitted and is not generated by human or animal agency;
 “Prime mover” means any engine, motor or other appliance which generates
or otherwise provides power
Who is the occupier?

 The person who has ultimate control over the affairs of

factory.
 Itincludes a partner in case of firm and director in case
of a company.
 In case of Government company, 'occupier' need not be
a director. In that case, person appointed to manage
affairs of the factory shall be occupier. [section 2(n)].
Approval, Licensing & Registration Of
Factories[sec.6]
 Making an application to the Government or Chief Inspector , along
with the duly certified plans and specifications required by the rules,
 Sent to the State Government or Chief Inspectors by registered post.
 And no order is communicated to the applicant within 3 months
from the date on which it is so sent, the permission deemed to be
granted.
 If the application is rejected appeal can be made to the government
within 30 days of the date of such rejection.
Notice by Occupier[sec.7]
The occupier shall, at least 15 days before he begins to occupy or use any premises
as a factory, send a notice to the Chief Inspector containing-
 (a) The name and situation of the factory;
 (b) The name and address of the occupier;
 (c) The name and address of the owner of the premises
 (d) The address to which communications relating to the factory may be sent;
 (e) The nature of the manufacturing process;
 (f) The total rated horse power installed or to be installed in the factory;
 (g) The name of the manager of the factory for the purposes of this Act;
 (h) The number of workers likely to be employed in the factory;
 (i) Such other particulars as may be prescribed
General duties of the Occupier

 Occupier shall ensure, the health, safety and welfare of

all workers while they are at work in the factory.
 Every occupier shall prepare, a written statement of his
general policy with respect to the health and safety of
the workers.
 Bring such statement and any revision thereof to the
notice of all the workers.
The Inspecting Staff[Sec.8]

 State government may appoint Chief Inspector, Additional Chief

Inspectors, Joint Chief Inspectors, Deputy Chief Inspectors, and
Inspectors.
 Prescribe their duties and qualifications
 Every District Magistrate shall be an Inspector for his district
 Every inspector is deemed to be a public servant within the
meaning of the Indian Penal Code
Powers of Inspectors[sec.9]

 Enter factory premises for investigation

 Examine the premises
 Inquire into any accident or dangerous occurrence
 Require the production of any prescribed register or document
 Seize, or take copies of, any register, record or other document
 Take measurements and photographs and make such recordings
 Exercise such other powers as may be prescribed
 No person shall be compelled under this section to answer any question or
give any evidence tending to incriminate himself .
Certifying Surgeon[Sec.10]
State Government may appoint qualified medical practitioners to be certifying
surgeons
Duties of surgeons
 (a) the examination and certification of young persons under this Act;
 (b) the examination of persons engaged in factories in such dangerous occupations
or processes
 (c) supervising the factories where
(i) cases of illness have occurred which are due to the nature of the manufacturing
process or
(ii) due to manufacturing process there is a likelihood of injury to the health of
workers or
(iii) young persons are employed in any work which is likely to cause injury to their
health.
Health Provisions[Sec.11-20]
Cleanliness[sec.11]

 The working conditions should be clean and safe.

 Clean the floor at least once a week by washing, or by some
effective method.
 Effective means of drainage shall be provided.
 White wash every 14 weeks
 Paint / varnish every 5 years
Disposal of wastes and effluents
[sec.12]
 There should be proper arrangements or disposal of
wastes and effluents.
 Follow state govt. rule.
Ventilation & Temperature [sec.13]

 Proper
level of ventilation temperature and
humidity must be maintained.
 Make provisions for reducing excess heat.
Dust and fume[sec.14]

 Effective
measures should be taken to prevent inhalation
or accumulation of dust & fume.
 Ifany exhaust appliance is necessary for, it shall be
applied as near as possible to the point of origin of the
dust, fume or other impurity.
Artificial Humidification[sec.15]

 Factoriesin which the humidity of the air is artificially

increased(like in textile units), keep it in limits.
 The water used for artificial humidification to be clean.
Overcrowding[Sec.16]

 14.2 cubic metres space per worker. While calculating this space,
space above the worker beyond 4.2 meters will not be taken into
account.
 Notice specifying the maximum number of workers, which can
be employed in any work room shall be displayed in the
premises.
Lighting[Sec17]

 Sufficient
& suitable lighting in every part of factory.
There should natural lighting as far as possible.
 All glazed windows and skylights used for the lighting
of the workroom shall be kept clean.
 Formation of shadows to such an extent as to cause eye-
strain or the risk of accident to any worker shall be
prevented.
Drinking water[Sec.18]

 There should be drinking water (wholesome water)

 Drinking points to be marked as drinking water. They
should be at least 6 meters away from wash room/urinal/
latrine/spittoons.
 If>250 workers are working, then have cool water
facility also.
Latrines and Urinals[Sec.19]

 There should be separate – for male and female.

 Proper cleaning should be there.
Spittoons[Sec.20]

 There should be sufficient number of spittoons.

 No person shall spit within the premises of a factory
except in the Spittoons provided for the purpose
 Whoever spits in contravention shall be punishable with
fine not exceeding five rupees
Safety of Worker[Sec.21-41]
Fencing of Machinery[Sec.21]

 Every dangerous parts must be securely fenced.

 TheState Government may by rules prescribe
such further precautions.
Machines in motions[Sec.22]

 Examination of machinery in motion only by a

specially trained adult male worker wearing tight
fitting clothing.
 No women or child should be allowed to work
Employment of young persons on
dangerous machines[Sec.23]
 Noyoung person should be allowed to work on
dangerous machines (unless he has been trained, and is
under supervision).
 Young person = 14 to 18.
Striking gears[Sec.24]

 Thereshould be suitable striking gears etc. to

switch off the power, so that if there is any
emergency, problem can be solved.
Self acting machines[Sec.25]

 Makesure that no person should walk in a space within

45 cm from any fixed structure which is not a part of
machine.
Casing of new machines[Sec.26]

 Allmachinery driven by power & installed

should be so sunk, encased or otherwise
effectively guarded as to prevent danger.
Cotton openers[Sec.27]

No women and children are allowed to

work on cotton openers.
Hoists and lifts[Sec.28]

 Every hoist and lift should be in good condition, and properly

checked.
 The maximum load it can carry – must be clearly mentioned.
 The gates should be locked by interlocking / safe method (it
should not open in between).
 To be properly examined in every 6 months.
Lifting machines, chains, ropes &
lifting tackles[Sec.29]
 Cranes & lifting machines, etc. to be of good
construction & to be examined once in every 12 month.
 Cranes and lifting machines not to be loaded beyond
safe working load.
 Cranes not to be approach within 6 metres of a place
where any person is employed or working.
Revolving machines[Sec.30]

 Maximum safe speed must be mentioned for each

machine.
 Speed indicated in notices should not to be exceeded.
Pressure plant[Sec.31]

 There should be safe working pressure on pressure

plants.
 Effectivemeasures should be taken to ensure that the
safe working pressure is not exceeded.
Floors, Stairs etc.[Sec.32]

 All
floors, steps, stairs, passages & gangways
should be of sound construction & properly
mentioned.
Pits, sumps, openings in floors etc.
[Sec.33]
Pits,sumps etc. should be securely covered
or fenced.
Excessive weights[Sec.34]

 No person should be employed to hold more weight

than the person can hold.
Protection of eyes[Sec.35]

 Provide
goggles if workers have to work on
something stretching to the eyes.
Dangerous fumes etc[Sec.36]

 Prohibitedto employ workers in places where

dangerous gas / fume is present.
 Practicable measures should be taken for removal of
gas, fume, etc.
Portable electric light[Sec.36A]

 It should not be above 24 volts

Explosive or inflammable dust, gas,
etc.[Sec.37]
 Take all measures for safety and to prevent explosion on
ignition of gas, fume etc.
Precautions in case of fire[Sec.38]

 There should be separate exit for cases of fire.

 There should be facilities for extinguishing fire.
Role of inspector[Sec.39,40]

 Section39, 40 and 40A talk about various roles that

have been assigned to the inspector.
 He may call for details regarding building, machines
etc.
Safety officer[Sec.40B]

 If1000 or more workers are employed, appoint a

separate safety officer.
Power to make rules to supplement
the above provisions[Sec.41]
 The State Government may make rules requiring the
provision in any factory of such further devices &
measures for securing the safety of persons employed
therein as it may deem necessary.
Welfare Provision[Sec.42-50]
Welfare Issues

 Washing facilities(Sec 42)

 Facilities for, storing & drying clothes(Sec43)
 Facilities for sitting(Sec 44)
 First aid appliances(Sec 45)
 Canteen( Sec46)
 Rest room, shelters, lunch room( Sec 47)
 Creches (Sec 48)
 Welfare Officers(Sec 49)
 Power to make rule(Sec 50)
Washing facilities[Sec.42]

 There should be washing facilities in every factory for

the workers–separate for male and female workers-
properly screened.
 conveniently accessible and shall be kept clean.
Facility for storing and drying of
clothing[Sec.43]
 There should be facility so that worker can place their
cloth not worn during the manufacturing process.
 There should be facility so that worker can dry their wet
cloth.
Facilities for sitting[Sec.44]

 Suitable arrangements for sitting shall be provided and

maintained for all workers obliged to work in a standing
position
 Ifthe worker can do the work by sitting, - there should
be sitting arrangement for the worker.
First-aid appliances[Sec.45]

 Thereshould be at least 1 first aid box for every 150

workers.
 It should have the prescribed contents.
 A responsible person should hold a certificate on first
aid treatment.
 An ambulance room should be there if the number of
workers is more than 500.
Canteen[sec.46]

 If
the number of workers is more than 250, the govt.
may make rules for canteen.
 The govt. may make rules regarding foodstuff,
construction, furniture, equipment of the canteen.
Shelter, rest room, lunch
room[Sec.47]
 When 150 workers are working, there should be rest
rooms, lunch room, etc.
 Such places should be having drinking water facilities
etc.
Creches[Sec.48]

 Ifthe number of women workers is more than 30, there

should be the creches.
 Itshould be sufficiently lighted, ventilated & to be
under the charge of trained women
Welfare Officer[Sec.49]

 Ifthe number of workers is 500 or more, there

should be a welfare officer to look after the
welfare of the workers.
In Nutshell

 Crèche - > 30 women workers

 Restroom / shelters and lunch room - > 150 workmen
 Cooled drinking water - > 250 workers
 Canteen - > 250 workers
 Ambulance room – Doctor, Nurse and Dresser cum compounder -
> 500 workers
 Welfare officer - > 500 workers
 Lady welfare officer - > more nos. of women workers
Working hours Of Adults
Working Hours

 Sec.51-Weekly hours not more than 48 hours a week

 Sec.52-First day of the week i.e. Sunday shall be a weekly
holiday
 Sec.53-Compensatory holidays
 Where a weekly holiday is denied he shall be allowed to avail the
compensatory holiday within a month.
Working Hours

 Sec.54-Daily working hours- no adult worker shall be allowed to

work in a factory for more than nine hours in any day
 Sec.55-Intervals for rest-no worker shall work for more than 5
hours before he has had an interval for rest of at least 1/2 an hour.
 Inspector may increase it upto six hours.
Spread over[sec.56]

 Inclusiveof rest intervals they shall not spread over

more than 10-1/2 hours in any day
 Inspector may increase the spread over up to 12 hours.
Night Shifts[Sec.57]

 Ifshift extends beyond midnight , a holiday for

him will mean a period of 24 hours beginning
when his shift ends.
Prohibition Overlapping
Shifts[Sec.58]
 Work shall not be carried in any factory by
means of system of shifts so arranged that more
than one relay of workers is engaged in the work
of same kind at the same time.
Extra Wages for Overtime[Sec.59]

 Ifworkers work for more than 9 hours a day or more

than 48 hour a week, extra wages should be given.
 Wages at twice the ordinary Rate.
Restriction on Double
Employment[Sec.60]
 No worker is allowed to work in any factory on
any day on which he has already been working
in any other factory
Notice of periods of work for Adult
Workers[Sec.61]
 Notice to be displayed at some Conspicuous place.
 Periods to be fixed beforehand
 Classification of workers-Groups.
 Copy of Notice in Duplicate & any change to be sent to Inspector.
Register of Adult
Workers[Sec.62,63]
 The manager should maintain Register of Adult workers
showing-
 Name
 Nature of work
 The Group etc. Of each & every Adult Worker in the factory.
 The Register shall be available to the Inspector at all time during
working hours.
Employment of young persons
Prohibition of employment of young
Children[Sec.67]
 No child who has not completed his 14th year
allowed to work in Factory.
Non-Adult workers to Carry Tokens
[Sec.68]
A child who has completed his 14th year may be allowed to work in
factory if:-
 a) a certificate of fitness for such work is in custody of manager
of factory.
 b) Such child or adolescent carries , a token giving a reference to
such Certificate.
Certificate of fitness

 Isa certificate issued by a certifying surgeon after examining

him & ascertaining his fitness for work in factory.
 Valid for 12 Months.
 Revocation of Certificate by surgeon , if child is no longer
fit.
 Fee payable by Employer:-Fee & Renewable Fee
 Effectof Certificate of Fitness:-deemed to be an adult for the
purpose of hours of work.
Working Hours for Young
persons[Sec.71,72]
 Working Hours limited to 4-1/2
 Not during Nights.
 Period of work limited to 2 shifts.
 Entitled to weekly Holidays.
 Female to work only between 6am to 7 pm.
 Fixation of periods of work beforehand.
Register of Young persons

 The manager should maintain Register of Adult workers

showing-
-Name
-Nature of work
-The Group etc.
 Of each & every Adult Worker in the factory.
 The Register shall be available to the Inspector at all time during
working hours.
Power to require Medical
Examination[Sec.73]
Inspector has the power to direct manager to have medical
examination of young persons working in case-
 Young Persons working without License.
 They no longer seem to be Fit.
Employment of Women

 Prohibition of women workers at night shift

 Women shall not be allowed to work in any factory except
between the hours of 6 A.M. and 7 P.M..
 The inspector may relax this norm but prohibited between 10
P.M. and 5 A.M.
 Working hours not more than-weekly 48 hours & daily 9 hours
Annual Leave with
Wages[Sec.78-84]
Rules:
 1) Leave Entitlement One day for every 20/15 days of work performed
in case of adult/Child who has worked for period of 240 days.
 2) Computation of Period of 240 days The days of lay-off, maternity
leave not exceeding 12 weeks,& earned leave in previous year should
be included.
 3)Discharge, Dismissal , Superannuation ,death , quitting of
employment He , his heir , nominee as the case may be entitled to
wages.
Annual Leave with Wages[Sec.78-84]
 4) Treatment of Fraction of Leave:- Half day or more is treated as full while
less than half is omitted.
 5) Treatment of Un-availed leave: Should be carried – forward to next
calendar year but shall not exceed 30 in case of an adult & 40 in case of child.
 6)Application for leave to be made in writing within specified time.
 7)Scheme for grant of leave.
 8)Display of Scheme for grant of leave.
 9)Refusal of leave to be in accordance with Scheme
 10)Payment of wages to worker for leave period if he is discharged or if he
quits service.
Wages during leave period[sec.80]

 Workeris entitled to wages at a rate equal to the daily

average of his total full time earnings for the days on
which he actually worked during the month immediately
proceeding his leave.
Penalties under the Act[Sec.92-
106]
General Penalty for Offences
[Sec.92]
 If there is any contravention of any of the provisions of the act,
the Occupier & Manager each shall be Guilty & punishable with
 Imprisonment for a term upto 2 years.
 with a fine upto Rs.100000
 or with Both.
[Sec.93]

 [Sec.93] further extends, if the contravention under

section 92 continued after conviction ,they(Manager&
Occupier) shall be punishable with further fine which
may extend to Rs. 1000 for each day on which
contravention is so continued.
Enhanced Penalty after
Conviction[Sec.94]
If a person convicted of any offence punishable under Sec 92, is again guilty
involving contravention of same provision ,he shall be punishable with
 Imprisonment for a term which may extend to 3 years.
 Or fine which shall not be less than 10000
 Or both.
 If any contravention of provision relating to safety, has resulted in an accident
causing death /serious bodily injury, Fine shall not be less than
Rs.35000/Rs.10000
Cognizance of Offences[sec.105]

 No court shall take cognizance of any offence under this act

except on a complaint by or with the previous section in writing
of an Inspector.
 The complaint shall be filed within 3 months of the date on which
offence comes to the knowledge of an Inspector. But it can be six
months , if offence consists of disobeying a written order made
by an Inspector.
Appeal[Sec.107]

 Themanager of the Factory or the Occupier on whom

an order in writing by an inspector has been served,
within 30 days of the notice, can appeal against it to the
prescribed Authority.
Display of Notices[Sec.108]

 A notice containing Abstracts of this Act & the rules made

thereunder and also the name & address of the Inspector and the
certifying surgeon.
 Shall be in English& Language Understood by the majority of the
workers.
 Convenient Places or near main Enterance.
Returns[Sec.110]

 TheState Govt. may make rules requiring Owner

, Occupier, Manager of factories to submit
Returns as may be required.
Power to make rules & give
directions[Sec.112,113,115]
 (Sec 112) The State Govt. may make rules providing for any
matter which may be discovered expedient In order to give effect
to the purposes of the act.
 (Sec 113) The central Govt. may also give directions to the State
Govt. as to carrying to the execution of the provisions of the act.
 (Sec 115) provides for the publication of the rules made under the
act in the official Gazette.
Restriction on Disclosure of
Information[Sec.118-A]
 Every Inspector shall treat as confidential the source of any
complaint brought to his notice on the breach of any provision of
this act. Further he shall not disclose to manager or occupier that
the inspection is made in pursuance of the receipt of complaint.
Industrial Dispute
Act,1947
Disputes mainly relate to the strife between employers and
their employees.
According to the Industrial Dispute Act,1947 sec
(2(k)),Industrial disputes mean any dispute or difference
between employers and employers, or between employers
and workmen, or between workmen and workmen, which is
connected with the employment or non employment or
terms of employment or with the conditions of labor of any
person.
Causes of industrial Disputes:

Causes of Industrial disputes may be grouped into

four categories :
(A) Industrial Factors
(B)Managements Attitude towards workers
(C) Government Machinery ; and
(D) Other Causes
(A)Industrial Factors :
Under this category, some of the causes of dispute may be :
(i) An industrial matter relating to
employment, work, wages, hours of work, privileges, the
rights and obligations of employees and employers, terms and
conditions of employment including matters pertaining to :
(a) dismissal or non-employment of any person
(b) Registered agreement , settlement or award : and
© demarcation (establishing limits) of the functions of an
employee
(iii) Anindustrial matter in which both the parties are
directly and substantially interested.
(iii) disputes arising out of
unemployment, inflation, change in the attitude of
(II)Management Attitude Towards Labor :
(i)Management ‗s unwillingness to talk over any
dispute with their employees.
(ii)Managements unwillingness to recognize a
particular trade union , delegating enough authority to
the representatives,etc.
(iii) unwillingness to negotiation and settlement of
disputes.
(iv)Managements insistence to take care of
recruitments, promotion etc without consulting the
concerned employees
(v)Managements unwillingness to provide services and
benefits to its employee's
(III) Government Machinery :
(a)Though there are number of enactments for promotion of
harmonious relations, it is ineffective and unsatisfactory due
to various reasons like their irrelevancy in the context of the
challenges of present industrial climate
/culture, incapability of understanding and answering
imperatives of development, improper and inadequate
implementation by many employers.
(b)The governments conciliation machinery has settled a
very negligible number of disputes .
(IV) Other Causes :
(i)Affiliation of the trade unions with a political party,
where the latter may instigate the trade unions to conduct
strikes, lockouts , gheraos etc.
(ii)Political instability, centre- state relations,sometimes
result into industrial conflict.
(iii)Other potential factors like corruption in industry and
public life, easy money, etccan also result into industrial
disputes.
 Industrial Disputes

Strikes Lockouts

Primary Secondary Others

Strikes Strikes
1. General
2. Particular
3. Political
4. Bandhs

Sit down
Stay-in Toke
Stay- Wor n or Lighte Picke Ghe Hunge
Tool
Go ting r
away k To Prote n ing rao
Down - & Strikes
Strike Rule st or
or Slo Boyc
s Strike Cat-
Pen w ott
Down s Call
Strike strikes
Industrial disputes are basically of two types ,i.e. Strikes
and Lockouts.
Strikes :
Strikes are a result of more fundamental
maladjustments, injustices and economic
disturbances.
Strike is a temporary cessation of work by a group of
employees in order to express grievances or to enforce a
demand concerning changes in work conditions.
Strikes are divided into three types .They are Primary strikes,
secondary strikes and other strikes.
Strikes :
Strike is one of the oldest and the most effective weapons of
labour in its struggle with capital for securing economic justice.
Strike has been defined in Section 2 (q) of the Industrial Disputes
Act as under—
―Strike means a cessation of work by a body of persons employed
in any industry acting in combination, or a concerted refusal, or a
refusal under a common understanding, of any number of persons
who are or have been so employed to continue to work or to
accept employment.‖
The following are essential requirements for the existence of a strike:
(1) There must be cessation of work.
(2)The cessation of work must be by a body of persons
employed in any industry;
(3) The strikers must have been acting in combination;
(4)The strikers must be working in any establishment which can be
called industry within the meaning of Section 2(j); or
(5) There must be a concerted refusal; or
(6)Refusal under a common understanding of any number of persons
who are or have been so employed to continue to work or to accept
employment;
(7)They must stop work for some demands relating to employment,
non-employment or the terms of employment or the conditions of
labor of the workmen.
Ingredients of Strike
Cessation of Work:-
This is most significant characteristic of the concept of strike. It has
been variedly expressed as ‘stoppage‘, ‗omission of performance of
duties suspension of work, refusing or failing to return to or resume
employment . Thus what required for strike is that there must be
stoppage of work or there must be refusal to continue to work.Refusal
must be concerted or under a common understanding.
1. The cessation of work may take any form. It
must, however, be temporary and not for ever and it must be
voluntary.
2. No duration can be fixed for this. Permanent cessation of work
would result in termination of the contract of work. Cessation of
work is not a cessation of contract of employment.
Concerted action

Another important ingredient of the strike is a concerted action.

The workers must act under a common understanding. The
cessation of work by a body of persons employed in any industry
in combination is a strike. Thus in a strike it must be proved that
there was cessation of work or stoppage of work under a common
understanding or it was a concerted action of the workers or there
was cessation of work by workers acting in combination.
I.Primary strikes are generally against the employer with
whom the dispute exists. They are :
(i) Stay Away Strikes: In this strike workmen stay away
from the work place. They organize
rallies, demonstrations, etc.
(ii)Stay-in or sit Down Strikes : In this strike, workmen
come to the place , they stay at the work place but they
don‘t work.
(iii)Tools Down, Pen Down Strike : Here the strikers lay
down their tools in case of factory workers , office
workers lay down their pens,
(iv)Token or Protest Strikes : It is of very short
duration and is in nature of signal for the danger
ahead. In this strike workers do not work for an
hour or a day.

(v)Lightening or Wild cat strike : In this strike, the

strike is done without any prior notice or with a
shortest notice.
(vi)Go –Slow : In this strike, the workers
intentionally reduce the speed of work.
(vii)Work to rule : In this strike, the strikers undertake the
work according to rules or job description.
(viii)Picketing : It is an act of protesting by the workmen in
front of the premises of the employer.
(ix)Boycott: It aims at disrupting the normal functioning
of the enterprise.
(x)Gherao : It is a physical blockade of a target either by
encirclement, intended to block from and to a particular office,
workshop etc.
(xi)Hunger Strike :This type of strike is resorted to either by
the leaders of the union or by some workers all at a time for a
limited period or up to the period of
settlement of disputes.
II Secondary Strike : Secondary strikes are against a third
party. These strikes are sympathetic strikes.
III. Other Strikes : These strikes are in the form of
general, particular, political and bandhs.

Lockouts:
Lockout means the closing of a place of business of
employment or the suspension of work, or the refusal by
the employer to continue to employ any number of persons
employed by him.
However, termination of employment or retrenchment,
and prohibiting an employee are not lockouts.
Lockouts

Section 2(1) of the Industrial Disputes Act, 1947 defines

―Lock-out‖ as the closing of a place of business of employment or
the suspension of work, or the refusal by an employer to continue
to employ any number of persons employed by him.
It is declared by employers to put pressure on their workers. It is
counterpart of a strike.
lockout may happen for several reasons. When only part of a
trade union votes to strike, the purpose of a lockout is to put
pressure on a union by reducing the number of members who are
able to work.
 Every employer has the option to lock out workers, if –
1) a dispute has been referred to a council or the Commission for
Conciliation, Mediation and Arbitration (CCMA);
a certificate that a dispute remains unresolved has been issued;
30 days have elapsed since the referral; and
II ) 48 hours‘ written notice of a strike is given to
a. the employer; or
b.a council (if the dispute relates to a collective agreement to be concluded in a
council); or
c. to an employers‘ organisation (if the employer is a member of an
organisation that is a party to the dispute); or
III) 48 hours‘ written notice of a lockout is given to
d.the trade union; or
e. to the workers (if they are not trade union members); or
f.a council (if the dispute relates to a collective agreement to be concluded in a
council)
During legal lockouts, employers may –
not have civil legal proceedings brought against
them during legal lockouts; and
recover the monetary value of payment in
kind through civil proceedings in the Labor
Court after legal lockouts.
 Layoff
Layoff implies temporary removal of an employee from
the payroll of the organization due to circumstances beyond
the control of the employer. It may last for an indefinite
period. But the employee is not terminated permanently
and is expected to be called back in future.
The employer employee relationship does not come to
an end but is merely suspended during the period of layoff.
It is temporary denial of employment. The purpose
of layoff is to reduce the financial burden on the
organization when the human resources cannot be utilized
profitably.
Under Section 2(KKK) of the Industrial Disputes
Act, 1947, layoff is defined as ―the failure, refusal or inability
of an employer, on account of shortage of coal, power or raw
materials or accumulation of stocks or breakdown of machinery
or by any other reason, to give employment to a workman
whose name appears on the muster rolls of his industrial
establishment and who has not been retrenched‖.
Layoff is restored in cyclical and seasonal industries. In
mines workers are laid off due to excess of inflammable
gas, flood, fire and explosion.
 According to Section 25(c) of the Industrial Disputes
Act, 1947, a laid off worker is entitled to compensation equal to
50 per cent of the basic wages and dearness allowance that would
have been payable to him had he not been laid off.
However, in order to claim this compensation, the laid off
workman must satisfy the following conditions:

a) he should not be a badli or a casual worker,

b)his name must appear on the muster rolls of the industrial
establishment,
c)he must have completed not less than one year of continuous
service, and
d)he must present himself for work at the appointed time
during normal working hours at least once a day.
Retrenchment

Retrenchment means permanent termination of service of an employee for

economic reasons in a going concern. The Industrial Disputes Act, 1947 defines
retrenchment as the ―termination by the employer of the services of workman for
any reason other than termination of services as punishment given by way of
disciplinary action, or retirement either voluntary or reaching age of
superannuation, or continued ill-health or the closure and winding up of a
business‖.
The Act lays down the following conditions for retrenchment.
1.The employee must be given one month‘s notice in writing indicating the
reasons for retrenchment or wages in lieu of such notice.
2. The employee must be paid compensation equal to 15 days for every
completed year of service.
3.Notice in the prescribed manner must be served on the appropriate
Government authority.
4. In the absence of any agreement to the contrary, the worker employed last
must be terminated first.
 PREVENTIVE MEASURES OF INDUSTRIAL
DISPUTES
Labor Tripartite
Standing Grievance
Welfare and
Orders Procedure
Officer Bipartite
Bodies

Collective Strong Labor Co- Joint Consultations

Bargaining Trade Partnership and
Unions Profit sharing
1]Labor Welfare Officer :
Section 49 (1) and (2) of the Factories Act, 1948 specifies
that every factory wherein 500 or more workers are
ordinarily employed at least one welfare Officer must be
appointed, where the number of workers are in
excess of 2500,the assistant and / or additional welfare
officers are required to be appointed to
assist the Welfare Officer.

The functions of Labor Welfare Officer includes :

(I) Labor Welfare Functions :Advice and assistance in
implementing legislative and non-legislative provisions
relating to :
(a)Health &Safety
(b)Working conditions
(c)Sanitation & Cleanliness
(d)Recreation
(e)Welfare Amenities
(f) Workers Education
(g)Services like Co-operative grain shops, housing cooperatives.
(h)Formation of welfare committees.
(i) Housing
(j) Implementation of welfare Acts.
(II) Labor Administration Functions :These may cover:
(a)Organizational Discipline (b)Safety &
Medical administration
(k)Wage& salary administration
(l) Administration of Legislation covering
Industrial Relations
(III) Labor
Relations Functions: These may consist of :
(a)Administration of standing orders.
(b)Settlement of Grievances.
(c)Settlement of Disputes through statutory
procedures.
(d)Trade unions& union management relations
(e)Steps to increase productivity efficiency.
2]Tripartite and Bipartite Bodies :
Industrial relations in India have been shaped
largely by the policies and practices of Tripartite
and Bipartite bodies.
The purpose of consultative machinery is to bring
the partners together for mutual settlement of
differences in spirit of cooperation and goodwill.
Bipartite consultative machinery comprises two
parties i.e. employees and employer, the important
bipartite body is works committees.
Works Committee :
Works committees greatly contribute in prevention of
industrial disputes. It is represented by an equal number of
representatives of each party and the method of their
appointment are also laid down in agreements or enactments.
Objectives and Functions :
(a)To promote industrial goodwill.
(b)To secure cooperation from employers and
employees.
(c)To ensure the cooperation of private concerns. (d)To
provide for a popular agency for supervising the
management of nationalized undertakings.
Works Committee :

For the successful working of the works committee,

the employers are required to abstain from doing
anything that is likely to hamper various facilities to
workers. The Trade unions on the committees also
have to abstain from doing things that upset the
operations of the undertaking.
3]Standing Orders :
Majority of the industrial disputes are related to
conditions of employment. To prevent this,
Standing orders are formulated. It was made
obligatory that standing orders should govern the
conditions of employment under the Industrial
Employment (Standing Orders ) Act of 1946. The
Standing Orders regulate the conditions of
employment from the stage of entry to the stage
of exit.
4Grievance Procedure :
Grievance generally arise from day – to- day working
relations. Grievances of the employees are readdressed
by the management.
Management can prevent the occurrence of industrial
disputes by solving the individual problems.
5 Collective Bargaining :
Collective bargaining helps for settlement of issues and
prevention of industrial disputes. It occurs when
representatives of a labor union meet management
representatives to determine employees wages and
benefits, to create or revise work rules and to resolve
disputes or violations of the labor contract.
6Strong Trade unions :
Trade union is the most suitable and effective agency to
conduct collective bargaining on behalf of the workers. A
powerful bargaining may be achieved by strong trade
unions, which enable the workforce to maintain harmonious
relations with the management.
7Labor Co-partnership and profit sharing :
Good industrial relations can be maintained through proper
partnership and profit sharing; employer gives a portion of
total profits to workers in addition to their normal wages.
This sort of attitude of management would create
psychological conditions favorable for industrial peace.
8] Joint Consultation :

Joint Consultation involves a continuous relationship

between labor and management and expects willingness
of management and the participation of workers in
discussing common problems of interest. This is the
result of collective bargaining relations on a stable basis
when parties know each other well and have a mutual
trust.
Settlement of Disputes:

Whatever may be the cause of industrial disputes, the

consequences are harmful to all stakeholders- management,
employees, economy and the society . For management,
disputes result in loss of
production, revenue, profit, and even sickness of the plant.
Employees would be hard hit as the disputes may lead to
lockouts and consequent loss of wages and even jobs.

Various methods are available for resolving disputes. Most

important of them are :
Collective
Bargaining Arbitration

Code of Dispute
Discipline Settlement
Conciliation

Grievance
Procedure Adjudication

Consultative
Machinery
Collective Bargaining:
Collective bargaining helps for settlement of issues and
prevention of industrial disputes. It occurs when
representatives of a labor union meet management representatives
to determine employees wages and benefits, to create or revise
work rules and to resolve disputes
or violations of the labor contract.
The bargaining is collective in the sense that the chosen representative
of the employees (i.e. union ) acts as a bargaining agent for all the
employees in carrying out negotiations and dealings with the
management. On the employer side, it is collective in those common
situations in which the companies have joined together in an employer
association for the purposes of bargaining with a union.
Collective Bargaining:
Collective bargaining has been viewed as a
process of social change, as a peace treaty
between the conflicting parties and as a system of
industrial jurisprudence.(i.e it is a method of
introducing civil rights into the industry ).
The process of collective bargaining involves six
major steps :
 Environment
Preparation for
Negotiation

Bargaining
Issues

Negotiating

Yes
Negotiation
Negotiation Overcoming
Breakdowns
Breakdowns Breakdowns

Reaching
No
Reaching the
the
Agreement
Agreement

Ratifying
Ratifying the
the agreement
agreement

Administration
Administration of
of the
the
Agreement
Agreement
Code of Discipline :
The code of discipline defines duties and responsibilities
of employers and workers. The objectives of the code
are:
1. To ensure that employers and employees recognize
each others rights and obligations.
2. To promote consecutive co-operation between
parties concerned at all levels.
3. To eliminate all forms of coercion, intimidation and
violence in IR.
4. To avoid work stoppages.
5. To facilitate the growth of trade unions.
6. To maintain discipline in the industry.
Grievance Procedure :
This is another method of resolving disputes.
Grievance is any discontent or dissatisfaction, arising out of
employment relationship, which an employee thinks , believes
or feels to be unfair, unjust or inequitable.
A grievance procedure is a formal process which is
preliminary to arbitration, which enables the parties involved to
attempt to resolve their differences in a peaceful and orderly
manner.
It enables the company and the trade union to investigate and
discuss the problem at issue without in any way interrupting
the peaceful conduct of business.
When the grievance redressal machinery works
effectively, it satisfactorily resolve most of the disputes
between labor and management.
 Voluntary VI stage within7 days
NS- Not satisfied Arbitration
NS
NS V stage Appeal to
Committee of
Management for
union &
Management
revision
Representatives
IV stage communicates the
NS
NS
Manager decision within 7
days
NS
NS
Grievance Committee
NS
NS III stage conveys
verbally
Departmental Head of the
Representatives department

NS II stage
Department
decision
Supervisor
Representatives within 3days
NS
Foreman
I stage answer to be
given within 48 hrs
Grievant
Grievant Employee
Employee
Arbitration :
Arbitration is a procedure in which a neutral
third party studies the bargaining situation, listens to
both the parties, gathers information and then
makes recommendations that are binding on both
the parties.
Arbitration is effective means ofresolving disputes
because it is :
1. Established by the parties themselves and the
decision is acceptable to them.
2. Relatively expeditious when compared to
courts and tribunals.
Process of Arbitration :
1) The labor union generally takes initiative to go for
arbitration. when the union decides, it notifies the
management.
2) The union & the management select the potential arbitrator
by carefully studying the previous decisions given by the
particular arbitrator, to detect any biases.
3) After the arbitrator is selected, the time & place for
hearing will be determined, the issue to be resolved will be
presented to the arbitrator in a document that
summarizes the questions to be decided, any contracts
restrictions that prohibit the arbitrator from making an award
that would change the terms of existing contract.
4) Each side represents its case at the hearing.
5) Each party has to submit formal written statements.
Process of Arbitration :

1) Witness , cross-examination, transcripts & legal counsel

may be used.
2) After hearing, the arbitrator studies the materials submitted
and reaches the decision within 30 – 60 days.
3) The decision given usually is a written opinion mentioning
the reasons.
4) The report is submitted by the arbitrator to the
appropriate government
Conciliation :

Conciliation is a process by which the representatives of workers and

employers are brought together before a third party with a view to
persuading them to arrive at an agreement by mutual discussion
between them. The third party may be an individual or a group of
people. The third party may also be called as mediators.
The ID Act, 1947and other state enactments authorise the
governments to appoint conciliators charged with duty of
mediating in and promoting the settlement of industrial disputes.
In Concialition , the ultimate decision rests with the parties
themselves but the conciliator may offer a solution to the dispute
acceptable to both the parties and serve as a channel communication .
The parties may accept his recommendation or reject it.
CONSILIAION

If the conciliation fails, the next stage may be compulsory

adjudication or the parties may be left
with their own choice. In cases where a settlement is arrived at,
they can record the settlement and in case of failure of the
conciliatory negotiations, they can send a failure report to the
appropriate government.
Adjudication :
Adjudication means a mandatory settlement of an industrial dispute
by a labor court or a tribunal. Generally, the government a dispute for
adjudication depending on the failure of conciliation proceedings.
Section 10 of the Industrial Act, 1947, provides for reference of a
dispute to labor court or tribunal.
Disputes are generally referred to adjudication on the
recommendation of the conciliation officer who had dealt with them
earlier. The government has a discretionary powers to accept or reject
recommendations of the conciliation officer. It is obvious that once is
referred for adjudication , the verdict of a labor court or tribunal is
binding on both the parties.
This is the most significant instrument of resolving disputes. But, it
has been criticsed because of the delay involved in resolving conflicts.
Consultative Machinery :
Consultative machinery is set by the government to
resolve conflicts. The main function is to bring the parties
together for mutual settlement of differences in the spirit
of co-operation and goodwill.
A consultative machinery operates at plant , industry , state
and national levels. At plant level, there are works committee
and joint management councils. Being bipartite in character,
works committee are constituted as per the provisions of
industrial Disputes Act, 1947 and joint management councils
are set up following the trust laid down in the Industrial
Policy Resolution,1956. At the industry
level, there are wage boards and industrial committee.
Labor advisory boards operate at the state and at the all India
level there are Indian labor conference and the Standing
labor committee. The bodies operating at state and national
level, are tripartite in character , representing government,
labor and management.
PAYMENT OF WAGES ACT,1936
 Introduction

 Object of the act

 Applicability of the act

 Definitions

 R u l e s for payment of wages (sec 3 to sec 6)

- Responsibility for payment of wages (S.3)
- fixation of wage - periods (s.4)
- Time of payment of wages (S.5)
- Mode of payment of wages (S.6)
 Deductions which may be made from wages (s.7 to s.13)

 L i m i t of deduction (s.7 (3) )

 Maintenance of registration (s.13-a)

 C a s e law

 Conclusion

 References
 The Payment Of Wages Act 1936 was come in to the force
on 23rd April 1936.This Act was passed to regulate the
payment of wages for certain classes of persons employed
in industry. It ensures payment of wages in a particular
form and at regular intervals without unauthorized
deductions. The Act extends to whole of India sec. 1(2). It
was extended to Jammu and Kashmir by the Central
Labour Law (Extension to Jammu and Kashmir) Act
1970.
.
 T o Regulate the payment of wages to certain class of
employed person.
 Regulation completed by the Act is to fold :
1. The date of payment of wages.
2. The deduction from wages whether fine or
otherwise.
 T o ensure payment of wages to persons who covered by
the Act certain provisions have been made in this Act.
 According to Sec. 1(4) of the Act, it applies to in the first
instance to the payment of wages to :
1. Person employed in Factory.
2. Person employed upon any railway by a Railway
Administration or either directly or through sub- contractor .
3. Person employed in industrial and other establishment
specified in sub – clauses (a) to (g) of clause (ii) of sec 2
4. The State Govt. may after giving 3 months notice by
notification in the Official Gazette , extends the provision of
this Act or any of them to payment of wages to any class of
persons employed .
1. Employed Person [sec 2 (i)] -

Employed Person includes the legal representative of a

deceased employed person.

2. Employer [sec 2 (i-a)] -

The term Employer includes the legal representative of a

deceased employer.
 3. Factory [sec 2 (i- b)]

“Factory" means any premises including the precincts thereof-

(i)whereon ten or more workers are working, or were working on any day
of the preceding twelve months, and in any part of which a
manufacturing process is being carried on with the aid of power, or is
ordinarily so carried on, or
(ii)whereon twenty or more workers are working, or were working on any
day of the preceding twelve months, and in any part of which a
manufacturing process is being carried on without the aid of power, or
is ordinarily so carried on,- but does not include a mine subject to the
operation of the Mines Act, 1952 (XXXV of 1952) or a mobile unit
belonging to the armed forces of the Union, a railway running shed or a
hotel, restaurant or eating place;
.
Explanation I.-

For computing the number of workers for the purposes of this

clause all the workers in different groups and relays in a day
shall be taken into account;

Explanation II.-

For the purposes of this clause, the mere fact that an Electronic
Data Processing Unit or a Computer Unit is installed in any
premises or part thereof, shall not be construed to make it a
factory if no manufacturing process is being carried on in such
premises or part thereof.
4. Industrial and other establishment [sec. 2 (ii)] -

(a)tramway service or motor transport service engaged in

carrying passengers or goods or both by road for hire or
reward;
aa) air transport service other than such service belonging to or
exclusively employed in the military naval or air forces of the
Union or the Civil Aviation Department of the Government
of India;
(b) Dock wharf or jetty;
(c) inland vessel mechanically propelled;
(d) mine quarry or oil-field;
(e) plantation;
(f)workshop or other establishment in which articles are produced adapted or
manufactured with a view to their use transport or sale;
(g)establishment in which any work relating to the construction development or
maintenance of buildings roads bridges or canals or relating to operations
connected with navigation irrigation or to the supply of water or relating to
the generation transmission and distribution of electricity or any other form
of power is being carried on;
(h)any other establishment or class of establishments which the Central
Government or a State Government may having regard to the nature thereof
the need for protection of persons employed therein and other relevant
circumstances specify by notification in the Official Gazette.
 5.“Wages" [sec 2 (iv)] –
All remuneration (whether by way of salary allowances or otherwise)
expressed in terms of money or capable of being so expressed which
would if the terms of employment express or implied were fulfilled
by payable to a person employed in respect of his employment or of
work done in such employment and includes -

(a)any remuneration payable under any award or settlement

between the parties or order of a court;
(b)any remuneration to which the person employed is entitled in
respect of overtime work or holidays or any leave period;
(c)any additional remuneration payable under the terms of
employment (whether called a bonus or by any other name);
 (d)any sum which by reason of the termination of employment of the
person employed is payable under any law contract or instrument
which provides
for the payment of such sum whether with or without deductions but
does not provide for the time within which the payment is to be
made;
(e)any sum to which the person employed is entitled under any scheme
framed under any law for the time being in force, but does not
include -

(1)any bonus (whether under a scheme of profit sharing or otherwise)

which does not form part of the remuneration payable under the
terms of employment or which is not payable under any award or
settlement between the parties or order of a court;
(2)the value of any house-accommodation or of the supply of light
water medical attendance or other amenity or of any service excluded
from the computation of wages by a general or special order of the
State Government;
(3)any contribution paid by the employer to any pension or
provident fund and the interest which may have accrued thereon;
(4)any travelling allowance or the value of any travelling
concession;
(5)any sum paid to the employed person to defray special expenses
entailed on him by the nature of his employment; or
(6)any gratuity payable on the termination of employment in cases
other than those specified in sub-clause (d).
a) Every employer shall be Responsible

b) In Factory –

Manager of the Factory is responsible

c) In Industrial or other Establishment

A person responsible to the employer for Supervision and

control of the Industrial or other Establishment.

d) In Railway –

A person nominated by Railway Administrationfor that

particular local area
e) In case of Contractor –

A person appointed by contractor who is directly under his

charge

f) In other Cases-

A person appointed by employer

 According to Sec 4 of the Act a Wage Period must not exceed
one month.
 A) If the number of persons employed in factory,
industrial or other establishment or in railway -
1. Wages to be Paid before 7th Day-
If person employed less than 1000 persons
2. Wages to be Paid before 10th day –
If person employed more than 1000 persons
3. In Case of Dock, Wharf or Jetty or in Mine-
Before expiry of the second working day from the
day on which his employment is terminated
B) Wages in case of Termination of Employment
–

1. Before the expiry of the 2nd working day from the day
on which his employment is terminated.

2. In case of closure of the establishment for any reason

other than a weekly or other recognized holiday a
wages must be paid before the expiry of the 2nd day from
the day on which his employment is terminated.
C) Exemption –

If the State Government may given general or special

order ,exempt the person responsible for the payment of
wages from the operation of the above provisions in
certain case.

D) Wage To be paid on a working Day –

Except under sub– section 2 all payments of wages

must be made on a working day
According to sec 6 all wages must paid –
- In currency coin or currency notes or both
- After writing authorization of employed person pay
him wages either by cheque or by crediting the wage
in his bank account
Section 7- sub –section (1)

1. Every payment made by the employed person to the employer or his agent
must for the purpose of this Act be deemed to be a deduction from wages.

2. Penalties mentioned hereunder are not deduction if imposed for good and
sufficient cause –

a) With holding of increment or promotion

b)In case of demotion

c) Suspension
Deduction made by the employer must be made according to this Act
only and this are as follows:
 1 . A) Fine (Section 8) –
-it must be approved by state Govt.
-Rules given in Section 8 of the Act are as follows :
1. Notice Board of fines must be displayed in the work premises
2. Give opportunity to employee to show the cause against the imposing fine
3. Amount of fine must be 3% of his wage
4. Fine should not imposed on any employee who is under 15 year
5. Fine imposed one time only
6.Fine should not recovered in installments
7.Fine should be recovered in 60 days
8.Imposed on the day act or omission made by the employee
9.It credited to common fund and utilize for the benefit of the
employees
- It must be deducted by employer for the one day or for any
period
- It Should not be exceed a sum which bears the same relationship
to the wage payable in respect of the wage period as this period
of absence does not to such wage period
- Employee refuses to work without proper reason when he is present
for the work place must be deemed to be absent from duty
- If 10 or more persons together absent for the duty without notice and
without any reasonable cause
-
- Give opportunity to explain reason or cause for damage or
loss happened
- Deduction amount must not be exceed than value or
amount of damage or loss
- All deductions and realization must be recorded in a
register to be kept by responsible person
A) Deduction for house Accommodation [Sec 7. (2) (d)] -
- Employer can be made deduction for the house
accommodation provided to employee
- This facility must be accepted by employee
- Deduction should not exceed an amount equivalent to the
value of the house accommodation provided.
B) Deduction for Amenities and Services [Sec.7 (2) (e)] –
- Employer can be made deduction for the amenities
and services provided to employee
- Deduction should not exceed an amount equivalent to the
value of the amenities and services supplied.
According to Section 7 (2) (f) -
- Advance paid to employee before employment began ,
this amount recovered from first payment of the wages to
employee
- Amount of advance given for travelling expenses can
not recovered
According to Section 7 (2) (ff) -

Employer can made deduction for recovery of loans with

interest made from any fund constituted for the welfare of
labour in accordance with the rules approved by state
Govt.
According to Section 7 (2) (fff) –

Deduction for recovery of loans granted for house

building and other purpose shall be subject to any rules
made by the State Govt. regulating the extend to which
such loans may be granted and the rate of interest
payable thereon
Income tax payable by the employed person can be deducted from
wages to him by the employer and amount is recovered in 12
months employment.

9. Deduction By Order Of Court[ Section 7(2)(h)]

Deduction required to be made by order of the court or other
authority competent to make such order may be made from
the wages of employed person.
-Deduction for payments to co-operative societies of
advance from any provident fund which is recognized by
Provident Fund Act 1925 or approved by the State
Govt.
This is subject to the conditions approved by the State
Govt.
A)According to sec. 7 (2)(j) – Deduction for the payment of
co-operative societies –
- It must be approved by State Govt. or prescribed officer
-Deduction made with written authorization of
employed person.
-Deduction made as per condition given by the State Govt.
B)According to sec. 7 (2)(k) – Deduction for the payment of
insurance schemes or E.I.C –
k) Deduction for payment of –
1.any premium on life insurance policy or for other purchases of
securities of Govt. of India or State Govt.
 2. Any saving scheme of post office
kk) Deduction For the payment of his contribution to any fund
constituted by employer or registered trade union For the welfare of
employed person or his family or both and it is approved by State
Govt. or prescribed officer

kkk) Deduction for payment of the fees payable by him for

membership of registered trade Union.

All above deduction made with the written authorization of the

employed person
 The employer has an authority to made deduction for the payment of insurance premium or
fidelity bond may be effected from wages.
13 . Deduction For Recovery of Losses [Section 7 (2)
(m)(n)(o)]
Deduction for recovery of losses sustained by the railway
administration made in the following cases
m)Losses on account of acceptance or counterfeit or base coins mutilated or
forged currency noted
n)Losses on account of the failure of the employed person to invoice to bill
,to collect or to account for appropriate charges due to fares, freight,
demurrage etc. or in case of sale of food in catering establishment
 o) Losses on account of rebate and refund
incorrectly granted by the employed person
such losses attributed to his neglect or default.

14. Deduction For Contribution to Prime Minister National

Relief Fund etc [section 7 (2)(p)-

With the authorization of employed person the deduction can be

effected towards contribution
1. In case where such deductions are wholly or partly made
for payment to co –operative societies 75% of such wages
and

2.In any other case 50% of such wages

 - Employer required to maintain register in the
following matter :
a) Details of person employed
b) Nature of work performed by them
c) Wages paid to them
d)Deductions made from their wages
e)Receipts given by them and
f) Such other particulars which may be
prescribed
- Register and records must be preserve for 3 years and it
must be available at the time of inspection.
PAYMENT OF BONUS ACT,1965
Introduction
 The practice of paying bonus in India appears to have originated during First World War when certain
textile mills granted 10% of wages as war bonus to their workers in 1917. In certain cases of industrial
disputes demand for payment of bonus was also included. In 1950, the full bench of Labour Appellate
Tribunal evolved a formula for determination of bonus; A plea was made to raise that formula in 1959.

 The Government of India accepted the recommendations of the Commission subject to certain
modifications. To implement these recommendations the Payment of Bonus Ordinance, 1965, was
promulgated on 29th May, 1965. To replace the said Ordinance the Payment of Bonus Bill was introduced in
the Parliament.
Objective

The object of the act as contained in the preamble is to provide for the payment of bonus to a person employed
in certain establishments on the basis of profits or on the basis of production or productivity and for matters
concerned therewith:
Broadly speaking the schemes covers the following:

 To impose statutory liability upon an employer of many establishments covered by the act to pay bonus to
employees to the establishments.
 To define the principle of Payment of Bonus according to the prescribed formula.
 To provide for the payment of minimum & maximum bonus and linking the payment of bonus with the
scheme of set-off & set-on.
 To provide machinery for enforcement of the liability for the payment of bonus.
 Applicability (Section 1)

 The act came into force on 25th September, 1965.

 The Act applies to every factory and every other establishment employing not less than 20 persons on any day
during an accounting year.
 The Central/State Government can, however, extend its provisions to any establishment
employing less than 20 but more than 10 persons.
 The establishments covered under the Act shall continue to pay bonus even if the number of employees falls below
10, at a later date.
 Amended in 1980, 1985, 1995, 2007 and 2015.
Continue

 Recent amendment was made in 2015 which includes the following:

 The Payment of Bonus (Amendment) Act, 2015 envisages enhancement of eligibility limit under section 2(13)
from Rs.10,000/- per month to Rs.21,000/- per month and

 Calculation Ceiling under section 12 from Rs.3500 to Rs.7000 or the minimum wage for the scheduled
employment, as fixed by the appropriate Government, whichever is higher.
Definition
1. Accounting year
 In relation to a company, the period in respect of which any profit & loss a/c of the company laid
before it in annual general meeting is made up, whether the period is a year or not.
2. Allocable Surplus
 In relation to an employer, being a company (other than banking company), which has not made the arrangements
prescribed under the income tax act for the declaration & payment within India of dividends payable out of its profits in
accordance with the provision of section 194 of that act,
67% of the available surplus in an accounting year.
 In any other case, 60% of such available surplus.
3. Gross Profit
 In the case of companies other than banking company G.P. under sec. 4 r to computed to be in the manner laid down in
2nd schedule. This schedule requires adding that to the net profit shown in
the Profit & Loss a/c of depreciation deducted in that a/c while computing gross profit.
Continue
4. Salary or Wage
All remuneration (other than remuneration in respect of overtime work) capable of being
expressed in terms of money, which would, if the terms of employment , express : or implied, were fulfilled, be payable
to an employee in respect of his employment or of work done in such employment and includes DA.
5. Establishment in private sector means any establishment other then an establishment in public
sector
6. Establishment of public sector means an establishment owned, controlled, or managed by :
 A government company as defined in sec 617 of companies act , 1956 ;
 A corporation in which not less than 40% of its capital is held whether singly or taken together by:
I. The government ;
II. The reserve bank of India ;
III. A corporation owned by the government or the reserve bank of India.
 Establishments to include
departments, undertakings and
branches Sec.3

 Where an establishment consists of different departments or undertakings or has branches, whether situated in the same
place or in different places,

 Provided that where for any accounting year a separate Balance-Sheet and Profit & Loss account are prepared and
maintained in respect of any such department or undertaking or branch

 The payment of Bonus Act provides for payment of bonus to persons employed in certain establishments of the basis of
profits or on the basis of production or productivity and for matters connected therewith.
 Computation of gross profit
Sec.4

 According to Sec. 4, the gross profits derived by an employer from an

establishment in respect of the accounting year shall –

(a) in the case of a banking company, be calculated in

the manner specified in the First Schedule;

(b) in any other case, be calculated in the manner specified in the

Second Schedule.
 Computation of Available Surplus
Sec.5
 Section 5 lays down about the available surplus in respect of any accounting year shall be the gross profits for that year after
deducting therefrom the sums referred to in section 6; But the available surplus shall be aggregate of –
(a) the gross profits for that accounting year after deducting therefrom the sums referred to in section 6; and
(b) an amount equal to the difference between—
I. the direct tax, calculated in accordance with the provisions of section 7, in respect of an amount equal to the gross
profits of the employer for the immediately preceding accounting year; and
II. the direct tax, calculated in accordance with the provisions of section 7, in respect of an amount equal to the gross
profits of the employer for such preceding accounting year after deducting therefrom the amount of bonus which the
employer has paid or is liable to pay to his employees in accordance with the provisions of this Act for that year.
 NOTE: - The calculation of bonus starts with a NET PROFIT as shown in the final profit in the P&L a/c.
Sums deductible from gross profits as
prior charges Sec.6
 Section 6 lays down about the amount which remains after deducting these ‘prior charges’ is the
“available surplus” for distribution as bonus;
(a) any amount by way of depreciation admissible in accordance with the provisions of section 32(1) of the Income Tax Act,
1961 or in accordance with the provision of the agricultural income-tax law, as the case may be.
(b) any amount by way of development rebate or investment allowance which the employer is entitled
to deduct from his income under the income-tax Act, 1961;
(c) subject to the provisions of section 7, any direct tax which the employer is liable to pay for the accounting year in respect of
his income, profits and gains during that year;
(d) any other sum specified in respect of the employer in the Third Schedule.
 Under Section 6, clause (a) the permissible deduction from the gross profit isn’t depreciation calculated according to any
recognized method of accountancy followed by a banking company, but only such depreciation as is admissible in accordance with
the provisions of section 32(1) of the income-tax act.
Calculation of direct tax
payable by the employer Sec.7
 Section 7 lays down about any direct tax payable by the employer for any accounting year shall, subject to the following
provisions, be calculated at the rates applicable to the income of the employer for that year;
(a) in calculating such tax no account shall be taken of—
(i) any loss incurred by the employer in respect of any previous accounting year and carried
forward;
(ii) any arrears of depreciation;
(iii)any exemption conferred on the employer under section 84 of the Income-tax Act or of any deduction to which he
is entitled under that act;
(b) where the employer is a religious or a charitable institution to which the provisions of section 32 do not apply and the
whole or any part of its income is exempt from tax under the Income-tax Act,
 Continue
(c) where the employer is individual or a Hindu Undivided Family, the tax payable on the
establishment.

(d) any rebate which the employer receives on the export of goods or merchandise.

(e) no account shall be taken of any rebate (other than development rebate or development
allowance) or credit or relief or deduction in the payment of any direct tax.
 The ‘rebate or relief’ in the payment of any direct tax in order to fall within the purview of sections 7(e) of the act must
satisfy two conditions:
I. It must be a rebate or relief “allowed under any law for the time being in force relating to direct
taxes or under the relevant annual finance act” and
II. It must be a relief or rebate for the development of any industry.
Eligibility Sec.8

 Sec 8 lays down that every employee shall entitled to be paid by his employer bonus, for every
accounting year, if he has worked for at least 30 working days in that year

 Employees of the general insurance companies, LIC, Central/State Government establishments, Indian Red Cross
Society, Universities and Educational Institutions, Hospitals, Chambers of Commerce, Reserve Bank of India,
Industrial Finance Corporation of India, Unit Trust of India, Social Welfare Institutions, Local Bodies, etc. are not
entitled to bonus under the Act. What they are paid as bonus, is ex-gratia payment.

 NOTE: - It is not necessary that 30 days of work shall be a continuous period.

An Employee suspended but subsequently reinstated with full back wages cannot be
treated to be ineligible for bonus for the period of suspensions.
 Disqualification for Bonus Sec.9

 Section 9 lays down that an employee shall be disqualified from

receiving bonus under this Act, if he is dismissed from service for—
(a) fraud; or

(b) riotous or violent behavior while on the premises of the

establishment; or

(c) theft, misappropriation or sabotage of any property of the

establishment.
Payment of Minimum Bonus
Sec.10

 Section 10 lays down about the minimum bonus which an employer is required to pay even if he suffers
losses during the accounting year or there is no allocable surplus (except in case of new establishments),
is 8.33% of the salary or wages of the employee during the accounting year.

 Rs. 100 in case of employees above 15 years and Rs 60 in case of employees below 15 years, whichever
is higher.
 Payment of Maximum Bonus
Sec.11

 Section 11 lays down that if in any accounting year, the

allocable surplus exceeds the amount of minimum bonus,
the employer shall pay bonus in proportion to the salary or
wages earned by the employee during that accounting year,
subject to a maximum of 20% of such salary or wages.
Bonus Calculation in General
Case
 Bonus= basic salary +DA*12*8.33%

For example If Basic salary is 8000 and DA 1500 So. Bonus

= 8000+1500*12*8.33/100
= 9500*12*8.33/100
= 114000*8.33/100
= 9496.2 RS. Annual Bonus

Note: The rate will be negotiated and the rate affordable to the company
will be declared.
 Salary limited for the
Month/ Year Salary ( Basic+DA)
purpose of bonus
April 2016 15500-00 7000-00

ANNUAL
May 2016 16000 -00( loss of pay of 3 days) 6322-58
June 2016 17300-00 7000-00
July 2016 18300-00 7000-00 BONUS
CALCULATION
Aug 2016 18300-00 7000-00
Sep 2016 19700-00 7000-00
Oct 2016 19700-00 7000-00
Nov 2016 20900-00 7000-00
Dec 2016 21200-00 NOT ELIGIBLE you call it loss of pay or leave without pay both are
same.when an individual does not have leave
Jan 2017 19900-00(loss of pay of 4 days) NOT ELIGIBLE balance in his account and he has given permission
to remain absent. so this absence is authorised one .
Feb 2017 21200-00 NOT ELIGIBLE no limit is there for loss of pay leaves ,depend upon
company.
March 201 21200-00 NOT ELIGIBLE
Total 55322.58
Bonus Payable = 56000*8.33% = 4608.37 Annual Bonus
 Calculation of bonus with respect to certain
employees Sec.12

 Where the salary or wage of an employee exceeds 20 [three

thousand and five hundred rupees] per mensem, the bonus
payable to such employee under section 10 or, as the case
may be, under section 11, shall be calculated as if his salary
or wage were 20 [three thousand and five hundred rupees]
per mensem.
Proportionate reduction in bonus in certain cases
Sec.13

 Where an employee has not worked for all the working

days in an accounting year, the minimum bonus of one
hundred rupees or, as the case may be, of sixty rupees,
if such bonus is higher than 8.33 per cent. of his salary
or wage for the days he has not worked in that
accounting year, shall be proportionately reduced
Computation of number of
working days Sec.14

 For the purposes of section 13, an employee shall be deemed to have worked in an establishment in any accounting year
also on the days on which—
(a) he has been laid off under an agreement or as permitted by standing orders under the Industrial Employment
(Standing Orders) Act, 1946 (20 of 1946), or under the Industrial Disputes Act, 1947 (14 of 1947), or under any
other law applicable to the establishment;
(b) he has been on leave with salary or wage;
(c) he has been absent due to temporary disablement caused by accident arising out of and in the course of his
employment; and
(d) the employee has been on maternity leave with salary or wage, during the accounting year
SECTION
Sec.15

 Where for any accounting year, the allocable surplus exceeds the amount of maximum bonus payable to the
employees in the establishment under section 11, then, the excess shall, subject to a limit of 20% of the total salary or
wages of the employees employed in the establishment in that accounting year, be carried forward for being set on in
the succeeding accounting year and so on up to and inclusive of the fourth accounting year to be utilized for the
purpose of payment of bonus.
SET OFF

 Where for any accounting year, there is no available surplus or the allocable surplus in respect of that year falls short
of the amount of bonus payable to the employees, in the establishment under section 10 and there is no amount or
sufficient amount carried forward and set on which could be utilized for the purpose of payment of the minimum
bonus, then such minimum amount or the deficiency, as the case may be, shall be carried forward for being set off in
the succeeding accounting year and so on up to and inclusive of the fourth accounting year.
 SET ON & SET OFF
&

 In calculating bonus for the succeeding accounting year, the amount of set on or set off
carried forward from the earliest accounting year shall first be taken into account.

 The allocable surplus so computed is distributed amongst the employees in proportion to salary or wages
received by them during the relevant accounting year.
 Special provisions with respect to certain
establishments (Sec.16)
 1A-In the first five accounting years following the accounting year in which the employer sells the goods produced or
manufactured by him or renders services as the case may be, bonus shall be payable only in respect of the accounting year in
which the employer derives profit and such bonus shall be calculated in accordandance with the provisions of the act.

 1B-For Sixth and seventh accounting years in which the employer sells the goods produced or manufactured by him or
render services taking into account the excess or deficiency, if any as the case may be, of the allocable surplus set on or set
off in the year fifth and sixth accounting years.

 1C-From the eighth accounting year Sec.15 shall apply –

(a) he has made provisions for that year's depreciation to which he is entitled under the IT Actor as the case may be
under the agricultural income tax law

(b) the arrears of such depreciation and losses incurred by him in respect of the establishment for the
previous accounting years have been fully set off against his profits
Adjustment of customary or
interim bonus payable
under the Act Sec.17

 Where in any accounting year—

(a) an employer has paid any puja bonus or other customary bonus to an employee; or
(b) an employer has paid a part of the bonus payable under this Act to an employee before the date on which such
bonus becomes payable, then, the employer shall be entitled to deduct the amount of bonus so paid from the
amount of bonus payable by him to the employee under this Act in respect of that accounting year and the
employee shall be entitled to receive only the balance.
Deduction of certain amounts from bonus payable
under the Act Sec.18

 Where in any accounting year, an employee is found

guilty of misconduct causing financial loss to the
employer, then, it shall be lawful for the employer to
deduct the amount of loss from the amount of bonus
payable by him to the employee under this Act in
respect of that accounting year only and the employee
shall be entitled to receive the balance, if any.
 Time Limit for
Payment Sec.19
 Payment of bonus pending before any authority under section22 within a month from the date on which the award
becomes enforceable or the settlement comes into operation.

 The bonus should be paid in cash within 8 months from the close of the accounting year or within one month from
the date of enforcement of the award or coming into operation of a settlement following an industrial dispute
regarding payment of bonus.

 Bonus is payable only annually.

Application of Act to establishments in public
sector in certain cases Sec.20

 If in any accounting year an establishment in public sector sells any goods produced or manufactured by it or renders any
services, in competition with an establishment in private sector, and the income from such sale or services or both is not less
than twenty per cent. of the gross income of the establishment in public sector for that year, then, the provisions of this Act
shall apply in relation to such establishment in public sector as they apply in relation to a like establishment in private
sector.

 Save as otherwise provided in sub-section:

nothing in this Act shall apply to the employees employed by any establishment in public sector.
 Recovery of bonus due from an employer
(Sec. 21)
 Where any money is due to an employee by way of bonus from his employer under a settlement or an award or agreement, the
employee himself or any other person authorized by him in writing in this behalf, or in the case of the death of the employee,
his assignee or heirs may, without prejudice to any other mode of recovery, make an application to the appropriate
Government for the recovery of the money due to him, and if the appropriate Government or such authority as the appropriate
Government may specify in this behalf is satisfied that any money is so due, it shall issue a certificate for that amount to the
Collector who shall proceed to recover the same in the same manner as an arrear of land revenue.

 Provided that every such application shall be made within one year from the date on which the money became due to the
employee from the employer.

 Provided further that any such application may be entertained after the expiry of the said period of one year, if the appropriate
Government is satisfied that the applicant had sufficient cause for not making the application within the said period.
 Reference of disputes under
the Act Sec.22

 Where any dispute arises between an employer and his employees with respect to the bonus
payable under this Act or with respect to the application of this Act to an establishment in public
sector, then, such dispute shall be deemed to be an industrial dispute within the meaning of the
Industrial Disputes Act, 1947 (14 of 1947), or of any corresponding law relating to investigation
and settlement of industrial disputes in force in a State and the provisions of that Act or, as the
case may be, such law, shall, save as otherwise expressly provided, apply accordingly.
 Audited accounts of banking companies not to
be questioned. Sec.24

 Where any dispute of the nature specified in section 22 between an employer, being a banking company, and its employees has
been referred to the said authority under that section and during the course of proceedings the accounts of the banking company
duly audited are produced before it, the said authority shall not permit any trade union or employees to question the correctness
of such accounts, but the trade union or the employees may be permitted to obtain from the banking company such information
as is necessary for verifying the amount of bonus due under this Act.

 Nothing contained in sub-section (1) shall enable the trade union or the employees to obtain any information which the banking
company is not compelled to furnish under the provisions of section 34A of the Banking Regulation Act, 1949
 Maintenance of registers,
records: Sec.26
• Every employer shall prepare and maintain such registers, records and other documents in such form and in
such manner as may be prescribed.

Inspectors :Sec27
• The appropriate Government may, by notification in the Official Gazette, appoint such persons as it thinks fit to be
Inspectors for the purposes of this Act and may define the limits within which they shall exercise jurisdiction.
An Inspector appointed under sub-section
• it may, for the purpose of ascertaining whether any of the provisions of this Act has been complied
with-
(a) require an employer to furnish such information as he may consider necessary;
 (b) at any reasonable time and with such assistance, if any, as he thinks fit, enter any establishment or any premises connected
therewith and require any one found in charge thereof to produce before him for examination any accounts, books, registers and
other documents relating to the employment of persons or the payment of salary or wage or bonus in the establishment;
 (c) examine with respect to any matter relevant to any of the purposes aforesaid, the employer, his agent or servant or any other
person found in charge of the establishment or any premises connected therewith or any person whom the Inspector has
reasonable cause to believe to be or to have been an employee in the establishment;
 (d) make copies of, or take extracts from, any book, register or other document maintained in relation to the establishment;
 (e) exercise such other powers as may be prescribed.

 Every Inspector shall be deemed to be a public servant within the meaning of the Indian Penal Code (45
of 1860).
 Any person required to produce any accounts, book, register or other documents or to give information by an Inspector under
sub-section (1) shall be legally bound to do so.
 Nothing contained in this section shall enable an Inspector to require a banking company to furnish or disclose any statement or
information or to produce, or give inspection of, any of its books of account or other documents, which a banking company
cannot be compelled to furnish, disclose, produce or give inspection of, under the provisions of section 34A of the Banking
Regulation Act, 1949
 Offences And Penalties
Sec .28

 For contravention of the provisions of the Act or rules the penalty is imprisonment up to 6 months, or fine up to
Rs.1000, or both.

 For failure to comply with the directions or requisitions made the penalty is imprisonment up to 6
months, or fine up to Rs.1000, or both.

 In case of offences by companies, firms, body corporate or association of individuals, its director, partner or a
principal officer responsible for the conduct of its business, shall be deemed to be guilty of that offence, unless the
person concerned proves that the offence was committed without his knowledge or that he exercised all due diligence.
Protection of action taken under the Act
Sec31

• No suit, prosecution or other legal proceeding shall lie against the Government or any officer of the
Government for anything which is in good faith done or intended to be done in pursuance of this Act
or any rule made thereunder.
 Act not to apply to certain classes
of employees. Sec32
Nothing in this Act shall apply to—
• employees employed by the Life Insurance Corporation of India;
• seamen as defined in clause (42) of section 3 of the Merchant
Shipping Act, 1958 (44 of 1958);
• employees registered or listed under any scheme made under the Dock Workers
(Regulation of Employment) Act, 1948 (9 of 1948), and employed by registered
or listed employers;
• employees employed by an establishment engaged in any industry carried on
by or under the authority of any department of the Central Government or a
State Government or a local authority;
employees employed by—
(a)the Indian Red Cross Society or any other institution of a like nature (including
its branches);
(b) universities and other educational institutions;
(c) institutions (including hospitals, chambers of commerce and social
welfare institutions) established not for purposes of profit;
 Continue

• employees employed by the Reserve Bank of India;

• employees employed by-

(a) the Industrial Finance Corporation of India;

(b)any Financial Corporation established under section 3, or any Joint Financial Corporation established under section 3A, of
the State Financial Corporations Act, 1951
(c) the Deposit Insurance Corporation;
(d) the National Bank for Agriculture and Rural Development;]
(e) the Unit Trust of India;
(f) the Industrial Development Bank of India;
(fa) the Small Industries Development Bank of India established under section 3 of the Small Industries Development Bank of
India Act, 1989;]
(ff) the National Housing Bank
(g) any other financial institution
• employees employed by inland water transport establishments operating on routes passing through any other country.
 Power of exemption Sec.36

• If the appropriate Government, having regard to the financial position and other relevant
circumstances of any establishment or class of establishments, is of opinion that it will
not be in public interest to apply all or any of the provisions of this Act thereto, it may,
by notification in the Official Gazette, exempt for such period as may be specified
therein and subject to such conditions as it may think fit to impose, such establishment
or class of establishments from all or any of the provisions of this Act.
 Power to make rules.Sec.38

(1) The Central Government may make rules for the purpose of carrying into effect the provisions of this Act.

(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for-
(a) the authority for granting permission under the proviso to sub-clause (iii) of clause (1) of section 2;
(b)the preparation of registers, records and other documents and the form and manner in which such registers, records and
documents may be maintained under section 26;
(c) the powers which may be exercised by an inspector under clause (e) of sub-section (2) of section 27;
(d) any other matter which is to be, or may be, prescribed.

(3) Every rule made under this section shall be laid as soon as may be after it is made, before each House of
Parliament while it is in session for a total period of thirty days
Calculation of the Statutory
Bonus
 Statutory Bonus means bonus payable as per statute, i.e., the Payment of Bonus Act. As per the Act, an amount
equal to 8.33% of the Basic + Dearness allowance paid to an employee who is eligible for bonus is to be paid
irrespective of availability of surplus or profit. Therefore, 8.33% is the statutory minimum bonus payable. However,
depending upon availability of profit, the employer shall pay bonus subject to a maximum of 20%.

 The Payment of Bonus Act, 1965, gives to the employees a statutory right to a share in the profits of his employer.
Prior of the Act some employees used to get bonus but that was so if their employers were pleased to pay the same.
Continue

 Payment of bonus act 1965 all the confirmed employees whose basis is less than or equal to 21000/- per month is eligible
for statutory bonus @ rate of 8.33% of Basic pay.

 The Act enables the employees to get a minimum bonus equivalent to one month's salary or wages (8.33% of annual
earnings) whether the employer makes any profit or not.

 But the Act also puts a ceiling on the bonus and the maximum bonus payable under the Act is equivalent to about 2 ½
months' salary or wage (20% of annual earnings).
 Meaning of the Available Surplus

 Available Surplus = Gross Profit [as per section 4] – Depreciation admissible u/s 32 of the Income
tax Act - Development allowance

 Calculate the gross profit in the manner specified in

 First Schedule, in case of a banking company, or
 Second Schedule, in any other case.
 Calculate The
Available Surplus

 Available Surplus = Gross Profit

1.) – Depreciation admissible u/s 32 of the Income tax Act
2.) - Development allowance
3.) - Direct taxes payable for the accounting year 4.)
– Sums specified in the Third Schedule
5.) + Direct Taxes in respect of gross profits for the
immediately preceding accounting year
6.) – Direct Taxes in respect of such gross profits as reduced by the amount of bonus, for the immediately preceding
accounting year.
 Formula Of
Available Surplus

1. Direct taxes payable for the accounting year (calculated as per sec-7)- sums specified in the third schedule.
2. Direct taxes (calculated as per sec-7) in respect of gross profit for the immediately preceding accounting year.
3. Allocable surplus = 60% of available surplus, 67% in case of foreign companies.
4. Make adjustment for „set on‟ and „set off ‟ for calculating the amount of bonus in respect of an accounting
year.
Thank You